What is an FSA?
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A flexible spending account (FSA) is a tax-advantaged account maintained by employers where employees can set aside a portion of each paycheck to pay for out-of-pocket medical expenses. No payroll taxes are due on funds allocated to an FSA, and the employee can use the money, tax-free, to pay for qualified medical expenses throughout the year.
FSAs can be used in conjunction with any type of health plan (unlike HSAs, which can only be contributed to if the person has coverage under an HSA-qualified high-deductible health plan). |
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Eligible expenses for FSA reimbursement typically include medical and dental expenses not covered by insurance, such as copays, deductibles, and prescription drug costs, as well as dependent care expenses like daycare costs for children or elder care expenses for a spouse or parent.
Qualified Medical Expenses
The Internal Revenue Service (IRS) provides a list of qualified medical expenses that are eligible for reimbursement through a Health FSA. Some common examples include doctor visits, dental treatments, eyeglasses, and prescription medications.
Health FSA Contribution Limits
The IRS sets annual limits on the amount that employees can contribute to a Health FSA. For 2025, the maximum annual contribution is $3,300
Use-It-Or-Lose-It RuleFSAs are subject to a use-it-or-lose-it rule, meaning that employees must use the funds in their account by the end of the plan year, or they will forfeit the remaining balance.
Conclusion
To maximize the benefits of an FSA, employees should develop a system for tracking expenses, retaining receipts, and submitting claims promptly.
Additionally, they should regularly monitor their FSA balances to ensure they are using the funds effectively and avoid forfeiting unused amounts at the end of the plan year.
Qualified Medical Expenses
The Internal Revenue Service (IRS) provides a list of qualified medical expenses that are eligible for reimbursement through a Health FSA. Some common examples include doctor visits, dental treatments, eyeglasses, and prescription medications.
Health FSA Contribution Limits
The IRS sets annual limits on the amount that employees can contribute to a Health FSA. For 2025, the maximum annual contribution is $3,300
Use-It-Or-Lose-It RuleFSAs are subject to a use-it-or-lose-it rule, meaning that employees must use the funds in their account by the end of the plan year, or they will forfeit the remaining balance.
Conclusion
To maximize the benefits of an FSA, employees should develop a system for tracking expenses, retaining receipts, and submitting claims promptly.
Additionally, they should regularly monitor their FSA balances to ensure they are using the funds effectively and avoid forfeiting unused amounts at the end of the plan year.